This morning I read a finance piece entitled "A Nation's Heavily Indebted Consumers Face a Painful Margin Call." The article focused on the Canadian economy, and opened with the following paragraph:
"At the height of the Covid-19 pandemic, with his job as a delivery driver bringing plenty of overtime and the cost to borrow at record lows, James Kebe went on a spending spree. He leased a boat and an all-terrain vehicle, and when his bank offered him a bigger line of credit, he maxed it out.Then interest rates started rising at their fastest pace in generations. And because Kebe’s line of credit had a floating rate, his monthly payments soared, too. The cost of his debt has now outpaced his take-home pay by C$900 (U.S. $660) a month, leaving him with little choice but to enter a form of creditor protection that will see his toys repossessed and keep him on a tight budget for the foreseeable future. 'I've always been able to squeak by until now,' he said by phone from his home in West Kelowna, in the Canadian province of British Columbia. Now when he's at the store, Kebe says his new mantra is: 'Do I need this? No I don’t.'"
I confess I blanched with horror when I read about this man's actions. The phrase "spending spree" tends to do that to me. Why? Because we've been in debt and hated it.
During our child-raising productive years, Don and I were desperately
trying to keep the woodcraft business afloat while raising and
homeschooling the kids. Money was always tight, and our income
was wildly unpredictable. The result? Our savings were practically nil,
and we got in over our heads with credit card debt (purchasing
necessities, not luxuries). It took us years to climb out of the
financial hole we'd dug and start putting money away for our older years.
As a result of our earlier experiences – even now, so many years later – I have a near-pathological fear of owing money. We refuse to ever take on more debt: no auto loans, no credit card debt, nothing. It's cash all the way, baby.
Then a few days ago, I read an article by Daisy Luther (The Organic Prepper) on the subject of FDIC bail-ins.
The article was fine, but as always it was the comments which followed that were even more interesting as everyone chimed in about his or her financial preparedness efforts.
One man wrote: "Our fin [financial] advisor was against us taking $ out of our 401k and paying off our property. We did it anyway. Our peace of mind is off the charts right now."
However a critic replied as follows: "No one thinks they will get 'old' and retirement seems an eternity before it happens, then suddenly it does, some are glad. Then what will your income be? SS [Social Security] can’t meet all expenses. U.S. T-bills now can be bought below par, then 6 months or a year later mature, then take the interest, get more bonds bought at less than value reinvest. They are paying 5% now. Only ones living on SS retirement only are in subsidized housing. Muni bonds are tax free."
Later she added: "Most retirees I know have CD’s in a local bank or credit union they need money to live off interest, also in gov. bonds, muni’s. Nothing else can give an income. If everything goes digital, gold and other metals can only be bought and sold among other collectors. Stores will only take digital like debit cards. 401k’s best be in US treasuries 100%. cashing a 401k will be a big tax hit."
Hmm. Is this woman a spokesperson for government bonds and other traditional investment strategies?
These comments sparked a lively discussion between Don and me because it touches on our own financial reality. Because of the financial uncertainty we experienced in our younger years, we never put money in "traditional" investments. Instead, we've done our best to squirrel away as large a cushion as we could manage on a tight budget. However we did learn the art of frugality to the nth degree. Coupled with our long-term goal to reduce our expenses to the point where we could live on very little, we're far more comfortable than we've ever been.
This touches on one aspect of financial management few
people ever discuss (or adopt): The radical concept of drastically lowering
one's regular or monthly expenses as a preparedness strategy.
When we had the opportunity to purchase our new (to us) home when we downsized a couple years ago, we leaped at the chance to pay cash and have no mortgage. While it would have been nice to find a place with more acreage, we deliberately limited ourselves to properties we could purchase outright for cash. Now, having lived without a mortgage for two years, I fully understand the "off-the-charts peace of mind" mentioned by the man mentioned above. It's true.
But just because we don't have a mortgage doesn't mean we've eliminated frugality. Yes, we've spent the last two years spending money buying things to turn this property into a homestead – lumber and other construction materials, fencing, and of course our plumbing woes last fall – but that's spending, not monthly expenses. We've continued whittling down our monthly expenses with a "how low can you go" attitude. If the financial bleep hits the fan for us, we can exist on as little as $800/month. If we were completely strapped for cash, we could drop that to about $500/month, possibly less.
Right now Don is receiving a very modest amount of Social Security. I won't be eligible for Social Security for another couple of years. However you can bet we'll keep our living expenses within the range of our anticipated income from these sources.
What did the critic above write? "Social Security can’t meet all expenses. ... Only ones living on SS retirement only are in
subsidized housing." Excuse me, but that's baloney. One of the reasons we've whittled down our expenses (including having no mortgage) is to be able to live comfortably on Social Security, or far less if need be.
So what about the strategies mentioned by the critic above? Should we invest in T-bills and other financial opportunities? In our book, no. We don't trust the government not to mismanage itself into insolvency. The repercussions of a government-orchestrated financial collapse are vast and far-reaching, and it means the death of not just Social Security, but all the fancy T-bills and other financial vehicles this woman touts. What will she do once she can't withdraw income from her investments?
In the event of a financial collapse, everyone will be in the same boat regarding economic hardship, and traditional investment strategies may no longer apply. When and if this happens, everyone will have to cope as best they can. But those who are used to living low on the hog at least won't be faced with owing money on things they can no longer afford, or feel deprived when they can't go on a "spending spree."
In other words, considering our past, I feel we're in about as solid a financial position as we can manage, despite our lack of "traditional" investments. (You might say we "invested" in frugality.)
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Perhaps a question to ask is this: Are your finances in line with a preparedness lifestyle? Is your lifestyle and spending habits in line with preparedness? Are you financially prepared to lose your job or weather an economic downturn?
The whole idea of financial preparedness is being able to handle, to the best of one's ability, economic blows ranging from the personal (job loss) to the international (a worldwide economic collapse). While we can't make much of a difference on the international platform, there's a lot we can do on a personal level to prepare.
My $0.02.
